Posts Tagged ‘ Euro ’

Over the past week, it has become clear that a third annual conflagration throughout Europe is upon us. The crisis has morphed yet again, and like The Hydra, it has come back in a more menacing form. The issue this summer is more profound than the “sovereign debt crisis” which struck last summer. Last summer’s issues were always containable with simple resolve from the ECB. The market forced the issue in sudden manner and eventually a fix came in the form of 3-year long-term refinancing operations (LTRO). Astute observers will notice that today, sovereign debt rates, while higher, have not flared up to the levels they reached last year. European interest rates should not approach summer levels because there is a set playbook that works to contain sovereign rates...

Investing ahead of a recession is like a trip to the dentist for a filling when the Novocain isn’t quite right. You know you are in for some pain, but it’s unclear just how much, and how long it will last. Europe is accepting the German path forward, which will at a minimum, lead to plenty of pain for many countries. Spain, Portugal, Greece, Belgium, Italy, and France are all experiencing, or likely to experience, a recession. Forward looking indicators are declining, confidence is dashed, austerity being implemented, European financial assets down sharply, and interest rates higher. The ECB is taking a minimalist approach to fighting the recession and the 17 countries in the Eurozone have different agendas, interests, and policy aims. In the background of the economic recession, there...

German leaders are coming out with comments that indicate there will not be a sweeping fix to the Eurozone financial crisis when leaders meet at a summit on October 23rd. Angela Merkel has been credited as saying “dreams that are taking hold again now that this package will be solved and everything will be over on Monday won’t be able to be fulfilled”. To me that is a pretty clear statement by an important leader. Moreover Wolfgang Schaeuble is echoing these sentiments this morning in the Financial Times. There are two approaches to crisis management, the American style approach which entails bringing out the bazooka, implementing a broad, sweeping, and immediate fix and worrying about many of the finer details and legal issues later on down the road. There...

Greece will ultimately stay on board. There I’ve said it – and it is really what I think will happen. There were a number of “unity” headlines hitting over night which have led to a continuation of the rally in global risk assets. Emerging Markets which looked sufficiently panic sold to call out yesterday are up 3-6% across the board. Major stock markets in Europe are up 3-4%. At risk of sounding Pollyannaish about the whole episode it appears to me that Greece and the rest of the Eurozone are coming to terms and seeking out a middle ground which avoids the suicide option. My thesis for the past month has been that this looming crisis is avoidable across the Eurozone because it has morphed into a crisis of...

Over Labor Day weekend we saw an unfortunate breakdown in Europe’s approach, strategy, and near-term ability to avoid a financial crisis. In the Mecklenburg Western Pomerian state (along the coast of the Baltic Sea), Germans voted against the Christian Democratic Union which is a repudiation of Angela Merkel’s support and commitment to the Eurozone. I’ll start out by saying that an all-out breakup of the Euro would be disastrous for the global economy and for financial markets. At a minimum, the world would go back into recession with a dire scenario being a redux of the financial crisis. If this were to happen there would be a rush to get to the sidelines quickly and heavy selling in all types of risk assets. As a result of the very...